PE gives US pensions more bang for their buck

Private equity produced a 10.7% annualised return across 21 state pensions, outperforming public equities, according to research from advisor Cliffwater.

Private equity has performed better than public equity for US state pensions over the past 16 years.

Private equity produced a 10.7 percent annualised return across 21 state pensions between 30 June 2002 and 2017, according to a study from investment advisory firm Cliffwater. This compares with 6.6 percent generated by a custom public equity benchmark weighted 70 percent to the Russell 3000 Index and 30 percent to the MSCI ACWI ex-US.

The gap between private and public equity returns has grown in recent years. The 21 pensions Cliffwater analysed had seen the value of $1 invested into private equity grow to $5.10 as of 30 June, compared with $2.80 for public equities. This deviation was narrower in 2009, with private equity valued at $1.77 and public equities at $1.06.

All state pensions with private equity portfolios outperformed public market benchmarks over the period. There was a wider variance between top and bottom quartile results, highlighting the importance of fund selection among LPs, the report noted.